This Data Centers 'Arms Race' Could Decide Who Commands The Metaverse
Microsoft’s pending acquisition of gaming giant ActivisionBlizzard is the Seattle company’s latest volley in a growing battle to control the future of cloud-based gaming — and ultimately the metaverse.
It could also transform the global data center landscape.
The $75B deal to acquire the company behind titles like World of Warcraft, Call of Duty and Candy Crush has further entrenched Microsoft as the strongest candidate to take fully cloud-based gaming into the mainstream.
Cloud gaming may be in its infancy, but both Microsoft and its competitors in the gaming and cloud services sectors see building out the infrastructure to support its adoption — not only within the future of gaming — but as a key inroad toward the creation of an interactive metaverse that they envision as the future of the internet.
With companies like Microsoft, Meta and others accelerating capital expenditures to support these virtual spaces, the anticipated build-out of data centers and digital infrastructure, particularly at the so-called edge, has significant implications for the real-world data center landscape.
“You see the Microsoft’s Activision Blizzard acquisition and their Minecraft acquisition a few years back, and you see what Facebook (now Meta) is doing, or companies like Tencent in Asia — they have the wherewithal to really drive this, and they’re putting in a lot of capital,” said Phillip Marangella, chief marketing officer at data center provider EdgeConneX.
“This is going to be a kind of arms race to build out the metaverse.”
At present, much of the data processing and storage for video games typically takes place on the device on which it is being played. A gamer’s Xbox, PlayStation or computer carries a significant amount of the computational workload.
That’s not to say a massive amount of cloud infrastructure isn’t already central to supporting today’s gaming ecosystem.
Games are downloaded to devices from the cloud. Enormously popular multiplayer games like Fortnight and Call of Duty require complex cloud infrastructure and a distributed network of data centers to support interactive gameplay, even if the majority of data processing and storage actually happens on each player’s console or computer.
But when the industry talks about cloud gaming, it is talking about moving all of that processing and storage from the console and into data centers. The vision offered by the industry is of removing consoles from the equation altogether, with any game playable from any internet-connected device with a screen.
Think Netflix, but completely interactive.
“Our vision for the gaming industry is that anyone should be able to play any game, anywhere they want. That’s not how the industry works today," said Sarah Bond, Microsoft’s head of gaming ecosystems, speaking at a McKinsey & Co. event earlier this month.
"[Right now] the industry is split up by platform. It’s split up by type of game. It’s not actually possible to play seamlessly across devices. Now, especially with the advent of the cloud … it doesn’t actually need to be that way.”
Industry analysts predict that the widespread adoption of cloud gaming is right around the corner. According to the Global Cloud Gaming report from gaming market analysis firm Newzoo, the adoption of cloud gaming is expected to grow from 23.7 million paying users in 2021 to 60.7 million paying users in 2024.
Revenue is expected to grow by close to 400% over that same time period.
Nascent cloud gaming ecosystems do already exist. Microsoft, Sony, Facebook, Google, Nvidia, Amazon and others have all launched cloud gaming services in one form or another, with limited game offerings and mixed reviews regarding functionality. Some, such as Google’s Stadia, were considered abject failures. But even the most successful services like Microsoft’s Xbox Cloud Gaming currently offer limited titles and are not available to many customers.
Why the slow rollout? Data centers, and the infrastructure that connects them, are at the heart of the challenge.
Immersive, graphics-heavy games use a massive amount of data when played over the cloud. According to Google, users of their ultimately unsuccessful cloud gaming platform tended to use close to 20 gigabytes of data per hour. This enormous data load from millions of users also has to be processed on the right kind of server with processors for quickly handling the graphics requirements at speeds that simulate what the user would be experiencing on their console. In short, this means building new data centers.
“When we look at the amount of information that’s being transferred when people are playing through the cloud, it’s a lot more than anything we’ve seen so far,” said Guilherme Fernandes, Newzoo’s head cloud gaming expert.
But the infrastructure challenge goes beyond just building new server racks.
Experts tell Bisnow that cloud gaming will require data centers and the digital infrastructure connecting them to be deployed at the edge — near end users, rather than just in centralized hyperscale data centers. According to gaming experts, servers located too far away from an individual gamer can lead to lags and delays in performance that ruin the user experience.
“When you're gaming, if your user experience has any latency involved and it affects the gaming experience, they're going to be extremely pissed that they're losing the game, not because of your ability, but because of connectivity,” EdgeConneX‘s Marangella said.
“For an interactive game that sits in the cloud, it depends on how it's deployed — those have to be highly distributed deployment, closer to where the gamers are. they're already building out a lot of that infrastructure to support the low latency requirements for cloud multiplayer gaming.”
Decentralized infrastructure is also necessitated by the massive amount of data flowing through the networks. Making things more difficult, today’s internet is designed primarily for data to flow one way: toward the user. The interactive nature of games means two-way traffic and more potential to overload the fiber cables and other infrastructure that connects to large hyperscale data centers.
“You're starting to get bottlenecks if you don't have any more distributed architecture because they're all trying to use those same pipes,” Marangella said. “By deploying at the edge, you can alleviate those bottlenecks and smartly route the traffic, whether it stays local, goes to another edge or back to the core cloud.”
Marangella said EdgeConneX is seeing an increase in interest in edge deployments from large cloud providers, an upturn he partially attributes to the needs of the gaming industry, although he points to other factors pushing workloads to the edge, such as the growing prevalence of the Internet of Things.
Others, like Baron Fung, research director for Data Center Capex at the Dell’Oro Group, say gaming is at the forefront of reshaping data center infrastructure toward the edge.
“Cloud gaming is a big one of the key applications for edge computing, but other than that, there's still a lack of business case to justify large infrastructure investment,” Fung said. “Still, I think we're still in the really early stages.”
Gaming may be a massive industry, but it accounts for just a small fraction of the overall revenue of the companies directing the most money toward building out cloud gaming infrastructure. Even for Microsoft, one of the gaming world’s major players, gaming would account for only 13% of overall revenue, even with revenue from ActivisionBlizzard included, according to The Wall Street Journal. For Meta and others, that figure is far smaller.
So why pour money toward it?
The answer, experts say, is that tech leaders have come to see cloud gaming — and the infrastructure needed to support it — as a key entry point to the development of a fully interactive metaverse that is increasingly seen as the future of the internet.
Indeed, the idea of the metaverse emerged from gaming, as consumers demonstrate their appetite for virtual worlds and virtual goods through games like Fortnite and Roblox. These games provide a glimpse into a metaverse future, with consumers attending concerts and paying real-world money for items that amount to little more than status symbols within the world of a game.
The infrastructure needed to support cloud gaming, experts tell Bisnow, is laying the foundations for the more expansive networks and data centers that would be needed to support this fully interactive vision of the internet.
While Meta's foray into the metaverse may be receiving the most attention following the company’s rebranding and Mark Zuckerberg’s well-publicized metaverse demonstration last year, Microsoft has opened up about its interest in connecting its experience with gaming to a broader metaverse for the better part of a decade. Ever since the company’s 2014 purchase of Minecraft — a virtual world-building game — the company has been fairly explicit about connecting its gaming capital investments to its vision of a broader interactive online world.
This continued on Microsoft’s Q2 earnings call Tuesday, as CEO Satya Nadella suggested the company’s cloud gaming investments were part of positioning the company’s infrastructure for the internet’s interactive future.
“We feel very well-positioned to catch the next wave of the internet,” Nadella told analysts on Tuesday.